The Week in Ethics: Mark Hurd’s Leadership Failure

Hewlett Packard’s Board of Directors demonstrated today (August 6, 2010) that if you violate HP’s Standards of Business Conduct (SBC) you can lose your job, even if you are the chairman and CEO.

Mark Hurd, who had served as HP’s CEO for the last five years (and chairman for four years), resigned at the Board’s request after an investigation concluded he had engaged in inappropriate behavior that violated HP’s SBC. The investigation initially began in response to a sexual harassment complaint by a former marketing contractor who retained Gloria Allred (known for taking on high-profile cases) to represent her. While HP did not find that the facts supported the complaint, they did reveal behavior the Board would not tolerate, paying a big severance package to end the relationship.

Hurd’s severance agreement is outlined in an SEC filinggranting $12.2 million, COBRA benefits, and stock options for a total package estimated to be somewhere between $40 and $50 million.

In a letter to employees August 6, 2010 interim CEO Cathie Lesjak outlined where Hurd had violated the SBC and the reasons for his departure. Lesjak, who also continues as CFO, wrote that Hurd “failed to disclose a close personal relationship he had with the contractor that constituted a conflict of interest, failed to maintain accurate expense reports, and misused company assets.” She indicated that each was a violation of the SBC and “together they demonstrated a profound lack of judgment that significantly undermined Mark’s credibility and his ability to effectively lead HP.”

The letter reminded employees that everyone is expected to adhere strictly to the SBC in all business dealings and relationship and said senior executives should set the highest standards for professional and personal conduct.

Hurd, who has been credited with driving HP’s turnaround, said in HP’s press release that “there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP….” He added that his resignation “is the only decision the board and I could make at this time.”

However, Hurd apparently fought resigning initially offering instead to pay HP back for the disputed funds. The board sent a critical message to HP stakeholders that delivering impressive financial and performance goals, as Hurd had done, wasn’t going to compensate for unethical conduct.

Hurd did get a free pass of sorts in 2006 when HP’s board violated HP’s SBC and “Global Master Privacy Policy” by approving pretexting to try and stop board leaks. The ensuing scandal involved federal and state investigations, a $14 million fine, loss of trust and reputation, and months of negative publicity. Hurd apologized but hid behind his performance role, saying he was focused on the turnaround and expected that others would ensure the compliance issues were handled appropriately.

Just as leaders don’t get a free pass when they miss performance goals, there ultimately isn’t a free pass when ethical standards aren’t met. Trust is essential in sustaining business performance. Leadership without ethical behavior is a failure of leadership.

So when Hurd wrote some time ago in the SBC’s preface that “We want to be a company known for its ethical leadership….” the problem wasn’t that the standard was too high to meet. The issue is Hurd wasn’t engaged in making real what that meant for him.

His message in the preface continued: “Let us commit together, as individuals and as a company, to build trust in everything we do by living our values and conducting business consistent with the high ethical standards embodied within our SBC.”

Tone at the top only counts when leaders use words that they believe in enough to live.